Short Lease in Good Location vs. Long Lease in Bad Location?

[Vincent Dang]

Hi all,

I've been searching for NNN deals and having hard time to analyze which one is a better deal. Most of the times, it comes down to 2 types of properties like below.

Property A:

- Low cap in the range of 4% - 5%

- Short term lease remaining:  3 or 5 years left with minimal renewal options.  Guaranteed by strong operator.

- Good location in a mid-size city with 200k+ in population

Property B:

- A bit higher cap in the range of 5% - 6%

- Long term lease remaining:  15 - 20 years left.  Guaranteed by strong operator.

- Small town location with population between 15k - 20k.

If the prices of the 2 properties above are the same, let's just say $1M or $2M, doesn't matter because assuming they have the same price point.  Also assuming the business model is the same (restaurant for example), and they're both somewhat healthy. Which one is a better deal to buy?  I plan to take on a loan so the long term lease is more favorable. But I also plan to re-sell for upgrade/exchange in a few years, so small town property is going to be hard to sell...

What are your thoughts?

Thanks.